CARGO PERILS INSURANCE AND CARGO EXCLUSIONS.

1
It may not be out of place to attempt the definition of cargo perils and cargo marine
insurance at the onset for an easy understanding of the discussion of this topic. Cargo
perils of the sea are such maritime perils2 as cargoes are exposed to during the course of a
maritime adventure3 whilst cargo marine insurance may be defined as a cover taken out
by an owner of cargo or a holder of some commercial interest in cargo, to ensure that the
assured is indemnified for such loss or damage as his cargoes are exposed to during a
maritime adventure thereby transferring risk of damage or loss of his cargo to the insurer
in consideration of his payment of the agreed premium. However, the principle of
proximate cause is applied to an insured peril or risk in order to determine whether the
loss or damage is recoverable or not but the loss would be recoverable as long as the
actual risk is covered by the insurance and as long as the insurance cover is still current at
the time of the occurrence of the hazard or peril insured against and the damage or loss is
not due to fraud or deliberate act.
It is also noteworthy that cargo insurance is one of the three main subdivisions of marine
insurance whilst the other two are, hull and freight. Cargo is often divided into two
namely, under-deck cargoes and on-deck cargoes. The latter is cargo which is loaded on
the ships main deck and may either be covered or uncovered, whilst the former is cargo
kept under the main deck.
Historical perspective of cargo perils insurance.
Historically, there was the Lloyds Ship and Goods (or SG) Policy that had over the years
had its archaic English expressions being interpreted and illustrated by cases decided by
courts. In respect of cargo risks, the Memorandum to the SG Policy was substantially
replaced by clause and specific clause concerning particular trades and commodities e.g.
1

Written by Mr. Michael Igbokwe, 2002.

Under section 5[3] of the Marine Insurance Act, cap. 216 of the Laws of the Federation of Nigeria, 1990,
maritime perils are perils consequent on, or incidental to, the navigation of the sea, that is to say, perils
of the sea, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints and detainments of princes
and peoples, jettisons, barratry, and other perils, either of the like kind or which may be designated by the
policy.
3
A maritime adventure includes where any cargoes or other moveables are exposed to maritime perils:
section 5[2] cap. 216.
2

Timber Trade Federation Clauses 1/1/62. However, the Memorandum4 had limitation due
to the extent of the losses that would be paid for under it because of the lack of capacity
of the then insurance market, a desire to exclude small or contentious claims and the
practical problem of proving loss by insured perils. By the Memorandum, in respect of
goods like corn, fish, salt, fruit and seed which are easily damaged by sea water, the
insurers paid no partial loss and in respect of the other commodities, losses under 5% or
3% in the given cases were taken to be normal incidents of the voyage and not perils of
the sea and indemnities irrespective of percentage were only paid where damage or loss
was due to stranding or in the case of general average. Two categories of perils namely;
Acts of God (within the context of perils of the seas only) and Acts of men (restricted to
acts performed maliciously, fraudulently or with hostile intent) such as enemies, pirates,
rovers and master and crew when in fraud of their employers and violation of their duties
and General Average acts were covered by insurers under the SG Policy.
Consequently, the SG Policy was deficient to the extent that acts of men like master or
crew whilst performing their duties for example, negligent navigation of the ship,
stranding or collision were not covered because when the Lloyds form of policy was
developed, the carrier of the goods was fully responsible and answerable for all losses
occasioned to the goods except when they were by acts of God, acts of men or general
average acts. The risks that the owner of the goods or merchant was exposed to due to the
above deficiency of the SG Policy and against which he needed to be protected, induced
the development of the policy of insurance.
In the 19th century, the above problems were dealt with by the doctrine of proximate
cause developed by the English courts in holding the underwriter liable if the loss or
damage to the cargo was caused proximately by the stranding or collision [as the case
may be], even though the stranding or collision was as a result of the negligence of the
master or crew; and also by the doctrine of subrogation which enabled the underwriter
who had paid for the loss to step into the assureds shoes and sue the carrier for the result
of his breach of the contract of affreightment it entered into with the assured.
Subsequently in the 19th century, as a result of increased commerce and improved legal
4

The Memorandum reads: N.B.--- Corn, fish, salt, fruit, flour and seed are warranted free from average,
unless general, or the ship be stranded; sugar, tobacco, hemp, flax, hides ad skins are warranted free from
average, under five pounds per cent; and all other goods, also the ship and freight, are warranted free from
average, under there pounds per cent, unless general, or the ship be stranded, sunk or burnt.
2

machinery, shipowners capitalised on the freedom of contract to insert wide exclusion

clauses in their bills of lading [standard forms] so as to widely disclaim all responsibility
for the cargo under their custody and also formed associations or clubs for their better
indemnity and protection. So in the 20th century, despite the international cargo
conventions5, the merchant adventurer or cargo owner was in a position where he
required better protection by wider and more refined insurance covers.
Later on there came into existence, Institute Cargo Clauses with average [W.A.] and
Institute Cargo Clauses free from particular average [F.P.A.] which forms included the
Memorandum limitations with less severity than in the S.G. form. This is because it
gave the assured an opportunity to choose between bearing all the risk of partial loss
(under the F.P.A. clause), or the risk of small partial losses below 3% or 5% (the W.A.
Clause), except where severity was reduced by the average clause. Consequent to the
average clause in the W.A. form and the F.P.A. clause in the F.P.A. form, the
underwriters agreed to pay certain classes of claim outside the average warranty
including packages lost during loading, transhipment or discharge, loss or damage caused
by fire, explosion, collision or contact with external substance, or caused by discharging
at a port of refuge or distress. Some of these exceptions have now been moved to the
named risk sections of the new (B) and (C) clauses.
When the use of the SG Form was abandoned, the Memorandum was dispensed with in
the policy of insurance and Institute Clauses. Even though particular average warranties
are now provided for in Section 77 of Marine Insurance Act6 of Nigeria, cargo insurance
covers which are warranted to be free from particular average [FPA] are now out of use
whilst the Institute Cargo Clauses [FPA] introduced in 1912 had gone through several
different changes since then to date. The disuses of the SG Policy, General Words and
Memorandum, and the high number of litigation which the decisions on the extent to and
overlap in the cover between W.A. and F.PA in the context of the SG Policy became
difficult to predict, induced the need to formulate the insurance cover in modern and
clarified terms.

5
6

The Hague Rules, the Hague-Visby Rules and the Hamburg Rules.
Chapter 216 Laws of the Federation of Nigeria.
3

As a result of displacement of wood by iron and steel in the construction of the hulls of
ships in the 20th century and safer carriage of goods by sea, underwriters willingly
extended the area of cover they granted to the assured. Today, three types of Institute
Cargo Clauses namely (A), (B) and (C) Clauses have replaced the Institute Cargo Clauses
(All Risks) 1/1/63, Institute Cargo Clauses [F.P.A] 1/1/53 and Institute Cargo Clauses
(W.A.) 1/1/63 respectively. However, it should be noted that Institute Cargo Clauses (B)
and (C) are not the exact reproduction of the Institute Cargo Clauses [F.P.A] 1/1/53 and
Institute Cargo Clauses (W.A.) 1/1/63 respectively because the aim of the former was to
escape from and avoid the complexities of the latter which had become highly connected
with an accumulated number of decided cases and to abolish the franchise and express
the insurance covers in modern language. Moreover, each type of Institute Clauses starts
with a group of [three clauses of] risks it covers of which the second and third are the
General Average Clause and Both to Blame Clause respectively.
INSTITUE CARGO CLAUSES [A], [B] and [C].
THE RISKS UNDER INSTITUTE CARGO CLAUSES [A] Clause 1.
The [A] Clause 1 gives all risks cover in respect of loss of or damage to the subjectmatter insured except as provided in clauses 4,5,6 and 7 thereof. The [B] Institute Clauses
are to give intermediate standard cover whilst the [C] Institute Clauses are to provide a
basic standard cover against major casualties in respect of the subject-matter insured
although both mainly differ in that [C] does not cover three of the risks covered by the
[B] Clauses (even though an assured under [C] can always purchase more coverage than
[C] provides), and in that there is a lower premium charge by insurers for [C] Clauses7
than for [B] clauses. One significant observation in clause 1 of both [B] and [C]
Clauses, is that in indicating the loss or damage covered, it refers to loss or damage
reasonably attributable to in clause 1.1. whilst in clause 1.2 it refers to loss or damage
caused by 8 specified risks or perils. Secondly, clause 1 of [A], [B] and [C] Clauses are
subject to the limitations in their clauses 4,5,6 and 79 whereas [B] and [C] covers are
restricted covers.
Clause 1 All Risks.
7

References to Clauses mean Institute Clauses.

The expression caused by means proximately caused whilst reasonably attributable to is retained
because of its historical usage and significance but does not go beyond the implication of causation.

This is the All Risks cover and though recent10, it is the most commonly used form of
cargo insurance out of the three forms [A, B, C] already mentioned. However, because it
is in reality not covering all risks to which cargo is exposed especially because it has
exclusions or limitations11 and as such may be misleading, it is better known as the [A]
Clauses. It is noteworthy that the Institute Cargo Clauses [All Risks] was introduced into
the cargo insurance world as a result of the need to have standardised all risks clauses
after the World War II when such all risks covers became very popular amongst
merchants and bankers albeit not without initial opposition by conservative insurers.
Courts played a major role in developing the principles governing the application and
interpretation of All risks clauses.
Judicial Interpretation of All risks clauses.
Before the standardised clauses came into usage, courts had through their decisions and
constructions of policies of cargo insurance, thrown light on what kind of cargo risk is
within or outside all risks cover. The first reported case on this was Schloss vStevens12 where goods insured to cover all risks by land or water by any conveyance
were left uncovered during an abnormal delay and got damaged by damp atmosphere.
The High Court [whose decision was approved on appeal], held that the assured could
recover despite the delay since all losses by accidental cause of any kind happening
during the insured transit were covered including damage caused by exposure of the
cargo to damp caused by an abnormal delay in its transportation.
Moreover, in the locus classicus case on all risks of British and Foreign Marine
Insurance Co. Ltd v- Gaunt13, bales of wool which were insured against all risks from
sheeps back and/or station, while awaiting shipment and/or forwarding and until safely
delivered. The insurers wanted to repudiate the claim on the ground that freshwater
wetting could not be avoided since the journey for the transportation of the cargo started

Popularly known as the Exclusions Clauses of cargo insurance.

The Institute Cargo Clauses [All Risks] were first introduced in 1951.
11
The [A] Clauses state that This insurance covers all risks of loss of or damage to the subject matter
insured except as provided in Clauses 4,5,6 and 7 below.
12
[1906] 2KB 665.
13
[1921] AC 41 at 57.
10

during the rainy season even though evidence showed that the taupulins provided were
not used. In this case the House of Lords held inter alia that:
i.

All risks has the same effect as if all insurable risks were separately
enumerated, including the risk that when the wool ought to have been covered
with taupulin when it started raining, the carriers agents/servants neglected
their duty,

ii.

All risks cannot be held to cover all damages however caused, because
damage that is unavoidable due to ordinary wear and tear and depreciation are
not covered,

iii.

The type of damage covered by all risks must be due to fortuitous

circumstances or casualty, or the risk must involve a fortuitous accident or
casualty,

iv.

Where all risks [and not merely risks of a specified class or classes] are
covered by the policy, the plaintiff discharges the onus on him to prove that
the risk attached when he has shown that the loss was caused by some event
covered by the general expression and is not bound to further prove the exact
nature of the accident or casualty which is the actual cause of the loss,

v.

All risks does not alter the general law and can cover only risks which are
lawful to be covered,

vi.

All risks has limitations in that it does not cover inherent vice or wear and
tear or British capture and it covers risks and not certainties. In this regard,
all risk is something which is occasioned to the subject-matter from outside
and not from within or the general behaviour of the subject-matter, being
what it is, in the circumstances under which it is carried and is not a loss
which the assured causes by his own act for then he has exposed his goods to
the chance of injury and has himself injured them.

It is observed and submitted that the Gaunt case is fully loaded with guidelines in
determining what all risks consists of, its limitations including the fact that one can
easily be misled by the expression in concluding that all risks to which the subject-matter
of insurance is exposed to during the carriage, are covered by all risks cargo insurance.
It must also be stated that the risk of the damage occurring differs from the occurrence
of the damage itself and either or both of them must be expressly shown to be covered.

It is also noteworthy that section 56 of the Marine Insurance Act14 in showing the
included and excluded losses follows the decision of the House of Lords in the Gaunt
case in that section 56(1)[a] of the Act excludes from recoverable losses, any loss
occasioned by the wilful misconduct of the assured whilst Section 56[2](c) of the Act
excludes from recoverable losses, such losses due to ordinary tear and tear,[ordinary
breakage or leakage], inherent vice or nature of the subject-matter insured, [or for any
loss proximately caused by rats or vemin, or for any injury to machinery not proximately
caused by maritime perils, unless the policy otherwise provides for the loss expressly or
by necessary implication. Moreover, from the meaning given by clause 7 of the Rules of
Construction of Policy in the Act to perils of the seas as a reference to fortuitous
accidents or casualties of the seas which, excludes the ordinary action of the winds and
waves, it is arguable that the House of Lords meant that all risks must come within
perils of the seas in order to be recoverable. It is also submitted that if examined from the
point that the Nigerian Federal Legislature in drafting cap. 216 merely followed and
adopted provisions which are in pari materia with the English Marine Insurance Act of
1906, it may be argued that the court in the Gaunt case which was decided in 1921
followed or interpreted the provisions of the English Marine Insurance Act of 1906 and
that cap 216 was not influenced by the Gaunt case but by the Marine Insurance Act,
1906.
Learned authors have also made useful contributions to the proper understanding of
all risks clauses. For instance, the learned authors of Marine Insurance15 hold the
following views about recoverable all risks, namely:
i.

The primary requirement being proof of a casualty or fortuity and not

certainty, the assured need only show the happening of a casualty during the
period insured so as to establish exactly how the loss was caused and not
proceed to identify the particular risk out of the many risks covered,

ii.

In practice, the very nature of the damage may be the only proof of casualty
if it is shown to have occurred during the transportation insured,

iii.

An exceptional damage not known to arise under normal conditions of such

transportation may be enough proof of a casualty or something accidental,

14
15

Cap. 216 of 1990, but which was originally an Act of 1961.

Donald O May and Julia and Hill, Butterworths [1993] at pages 166 and 167.
7

iv.

Where the nature of damage is due to inherent vice or wear and tear, the
assured must reasonably prove that the loss was due to a casualty and not to a
certainty or inherent vice or wear and tear or depreciation16, So, ordinary wear
and tear or unavoidable depreciation or insufficient packing are not covered
under all risks.

v.

Where as it is usual in practice, the damage is consistent with an external

cause or inherent vice, the assured must give evidence reasonably showing
that the damage is not due to inherent vice, otherwise he would have failed to
prove a casualty,

vi.

To succeed under all risks cover, the assured should prove that the casualty
or risk operated during the currency of the policy17, which proof he may in
practice proffer by showing that the cargo was sound at the beginning of the
insured transportation but was found damaged at the point the insurance
terminated, but the assured may not be able to show that the damage occurred
during the currency of the transit insurance in a warehouse to warehouse
insurance of cargo where the damage claimed may have occurred prior to
warehouse at port of shipment or after discharge into warehouse at
destination.

vii.

Country damage will not be indemnified for under a policy covering the
good from port of shipment.18

It is now necessary to look at the position of all risks under the Institute Clauses.
All Risks under Institute Cargo Clauses [A] Clause 1.

16

In Berk [F.W.] & Co Ltd-v-Style [1956]1 Q.B 180, where goods in bags which were insured against all
risks of loss or damage from whatever cause arrived with many of the bags having burst in transit due to
weakness of the bags or insufficiency of packing, the insurers were not held liable. C/F Theodorou vChester [1951] 1Lloyds Rep. 204 where sponges packed in cases wrapped in hessian were insured against
all risks of loss and/or damage however arising, irrespective of percentage were damaged by water, dirt,
paint which went into the hessian and the court held the damage recoverable notwithstanding the
underwriters claim that they were normal transit-induced damage.
17
This rule was also confirmed by N. Geoffrey Hudson nad J.C. Allen in their book, The Institute Clauses
3rd Edition, LLP [1999] at page 13
18
See, Fuerst Day Lawson Ltd-v-Orion Insurance Co. Ltd [1980]1Lloyds Rep. 656, where drums of oil
insured against all risks were upon being found to contain water with small traces of oil, held not to be
recoverable because it was probable that the drums contained water with small traces of oil for deception
purposes.
8

In practice, insurance brokers try to formulate terms which are usually by typewritten
attachments to and Institute Clauses to, the policy for their assured which would extend
the extent of all risks to include risks that from judicial interpretations, are not covered
by all risks like inherent vice or other types of loss or damage which may not be
fortuitous. For instance, they are worded like this insurance is to cover all loss or
damage however caused or purport to cover all loss or damage and not just all risks of
loss or damage. Even though by virtue of the rule of interpretation, such attachments will
prevail over the terms in the standard form of insurance where there is a conflict between
the attachments and the terms of the insurance policy, the question arises whether such
wordings are wide enough to cover inherent vice or inevitable loss due to the nature of
the subject-matter insured despite the exclusion in Section 56[2][c] of cap. 216 and the
specific exclusion in the Institute Clauses.19 It has been argued by authors that since the
provisions of Section 56 of cap. 216 would apply unless the policy otherwise provides
words can be used to include inherent vice as one of the risks insured against and such
terms would be given their plain meaning and applied accordingly. In Overseas
Commodities v- Style20, the policy covered all risks of whatsoever nature and kind
including inherent vice and hidden defect. Condemnation by authorities to take place
within three months of arrival and it was held that the assured would have been
entitled to recover for the inherent vice which caused the damage if not for the breach of
warranty.
Secondly, it has been observed that amendments are made by way of modification or
introduction of new clause to take care of situations hitherto not covered as soon as
courts interpretation of any of the clauses shows its inadequacy or as soon as there is a
new situation needing to be covered. However, the expression, all risks of loss or
damage from whatsoever cause arising is not in itself enough to cover inherent vice.21
Moreover, whilst the case of Traders & General Insurance Association Ltd v- Bankers
and General Insurance Co. Ltd22 shows that inherent vice can be covered without
express words, the case of Gee & Garnham v- Whittall23 show that all loss or damage
19

Since ordinary meanings of words used in statutes are given to them in their construction, there is bound
to be a difference between a clause covering all damage and one covering all risk of damage.
20
Ibid.
21
See, Berk [F.W.] & Co Ltd-v- Style, ibid.
22
[1921] 38 TLR 94.
23
[1955] 2 Lloyds Rep. 562
9

will not cover inherent vice. In the face of the conflict in the two High Court decisions,
the House of Lords decision in Soya gmbH Kommanditgessellschaft v- White24 upheld
the displacement of the prima facie rule that inherent vice was excluded from covered
risks or damage or loss when the policy itself expressly included it. The court also
indicated that inherent vice as used in Section 55[2][c] of the English Marine Insurance
Act of 190625 refers to a peril by which a loss is proximately caused and not descriptive
of the loss itself and that it means the risk of deterioration of the goods shipped as a result
of their natural behaviour in the ordinary course of the contemplated voyage without the
intervention of any external accident or casualty. To Lord Diplock, prima facie, the risk is
excluded from a policy unless the policy otherwise provides either expressly or by
necessary implication.
Cargo clauses A is proper for the insurance of highly expensive and valued and easily
damaged cargo, clothing, machinery and hi-tech equipment.

RISKS COVERED IN CLAUSE 1 OF [B] AND [C].

1. Clause 1.1. Perils.
In order to recover in respect of cargo covered by clause 1 of B and C Clauses, the
assured has to prove that the loss or damage to the insured cargo was reasonably
attributable to [and not caused by] any of the risks discussed hereunder.
[a] Fire or explosion [1.1.1.]: Loss of cargo by fire due to negligence, accidental or
unascertained cause is indemnifiable but the insurers have the onus of proving any of the
exclusions if they intend to deny liability. Spontaneous combustion covers loss or
damage to the cargo insured due to fire occasioned by the nature and state of the cargo
itself. For instance, hemp can spontaneously catch fire when transported in a critical
condition and coal can equally catch fire when it usually heats up during carriage.
[b] Vessel or craft being stranded, grounded, sunk or capsized [1.1.2]: Stranding
happens when a ship makes contact with the ground or other obstacle and remains stuck
there for some time and not a mere touch and go or striking of the ground. It is more
serious than grounding. Even where the grounding is intentional, the damage or loss of
24
25

[1950] 1Lloyds Rep. 491.

It is in pari materia with section 56 of cap. 216.
10

the insured cargo must be fortuitous in order to be recoverable. Sunk or capsized do not
mean the same thing. Sunk is when the ship can sink no further and a ship can sink
without being fully covered by water and may be fully covered by water without actually
resting on the sea or river-bed. Capsized is when the ship is overturned or wholly
heeled over and is also applicable to cargo being carried from a ship by a lighter.
[c]Overturning or derailment of land conveyance [1.1.3]: Land conveyance includes
any means of transportation of goods on land like vehicles, wheelbarrow, forklift, rail and
road trucks but not platforms, pallets or flats on which goods are placed to assist loading,
stowing or discharge. The clause is usually treated as a cover under 1.1.4 but in this
clause, there must be an overturning of the means of transportation and not just an
overturning of the cargo being carried by the land conveyance.
[d] Collision or contact of vessel craft or conveyance with external object other than
water [1.1.4]: For the loss or damage to be recoverable, the object with which the stated
medium of carriage here [carrying ship, or land conveyance], collides or has a contact
resulting in the loss or damage, must be external to the carrying medium.
[e] Discharge of cargo at port of distress [1.1.5] This covers the loss or damage to
insured cargo due to discharge of the insured goods at a port of distress and complements
the cover under clause 1.2.1 and general average clause 2.
[f] Earthquake volcanic eruption or lightning [1.1.6]: Though not in [C] Clauses, these
risks are called Acts of God rather than perils of the sea.
2. Clause 1.2 Perils.
In order to succeed in any claim under clause 1.2 perils, the assured has to prove that the
loss or damage to the insured cargo was caused by any of the risks discussed
hereunder.
[a] General Average Sacrifice [1.2.1] One of the points to take note of here is that this
clause recognises the statutory provision26 that in the case of general average sacrifice,
26

Section 67[4] cap. 216.

11

the assured can recover from the underwriter in respect of the whole loss of his cargo
even though he has not enforced his right of contribution from the parties liable to
contribution in the general average sacrifice. The insurer would upon payment be
subrogated to assureds rights and remedies against the other parties to the general
average sacrifice.
[b] Jettison or washing overboard 1.2.2]: Jettison is the throwing of cargo or part of
the ships equipment aboard in order to either lighten the vessel when it is in peril at sea
or when ashore in order to refloat her and not when the cargo is thrown overboard
because of its inherent vice, say putridity of meat. Jettison is usually a part of general
average and can therefore in some cases be recovered under clause 1.2.1. albeit under
1.2.2. jettison does not have to amount to general average sacrifice in order to be
recoverable.
[c] Entry of sea lake or river water into vessel craft hold conveyance container liftvan
or place of storage [1.2.3]: This clause appears only in [B] and in [C] clauses. Here,
assured is merely to prove that the loss or damage was caused by an entry of sea lake or
river water into one or more of the stated means of transportation or storage.
[d]Total loss of any package lost overboard or dropped whilst loading on to, or
unloading from, vessel or craft. [1.3]: This clause which is only in [B] Clause, covers
sling losses resulting during loading, transhipment or unloading from vessels or crafts
whether voluntary or forced discharge. It does not cover sling losses during loading,
transhipment or unloading from land conveyances nor due to pilferage or theft.
GENERAL VERAGE CLAUSE 2.
This clause states as follows:
This insurance covers general average and salvage charges, adjusted or determined
according to the contract of affreightment and/or the governing law and practice,
incurred to avoid or in connection with the avoidance of loss from any cause except those
excluded in Clauses 4,5,6 and 7 or elsewhere in this insurance.
One of the things to be noted here is that even though there are statutory provisions in the
Marine Insurance Act27 indicating the liability of the underwriters for salvage charges and
general average act, the underwriters and the assured are not directly liable for salvage
27

Sections 66 and 67 cap. 216.

12

charges and general average expenditure incurred by the carrier. Salvage charges concern
the amount payable to a salvor who is a volunteer from outside the maritime adventure,
general average concerns the settlement of expenditure incurred and/or money paid for
proerty sacrificed, as between the parties to the adventure among themselves. The
governing law of the adjustment of general average, unless the contract of affreightment
otherwise provides, is that of the country of port of destination or of the place where the
ship and the cargo were separated if the voyage was broken up. Although, cargo owners
do not determine the contents of bills of lading, those bills or charterparties often contain
adjustments based on the York- Rules.
Secondly, even though under the General Average Clause, cargo insurers must recognise
any properly stated adjustment, another statutory provision in the Marine Insurance Act,28
frees the insurer from liability for any general average loss29 or contribution where the
loss was not incurred for the purpose of avoiding or in connection with the avoidance of a
peril insured against. The adjustment of the general average charges and the
determination of the salvage charges are in accordance with English law and practice
where insurers will respond to general average contributions and the proportion of
salvage charges the insured has a duty to pay. Even though this clause appears not to
recognise specifically adjustments of the general average contributions on the basis of the
most commonly used York-Antwerp Rules which is often provided for such adjustments
in the bill of lading or charterparty, the same result is attained by the expression
according to the contract of affreightment..
Thirdly, clause 2 cover is limited by the exclusions in clauses 4,5 6, and 7 of the Institute
Clauses [A], [B] and [C] and by any other exclusions which may be in the relevant
insurance cover.
BOTH TO BLAME COLLISION CLAUSE 3.
This clause provides as follows:
This insurance is extended to indemnify the Assured against such proportion of liability
under the contract of affreightment Both to Blame Collision Clause as is in respect of
28

Section 67(6) cap. 216.

Section 67[1] of cap. 216 defines a general average loss as loss caused by general average act and
includes general average expenditure and a general average sacrifice.

29

13

a loss recoverable hereunder. In the event of any claim by the shipowners under the said
Clause the Assured agree to notify the Underwriters who shall have the right, at their
own cost and expense, to defend the Assured against such claim.
Under the 1910 Brussels Collision Convention, [which was domesticated in England by
virtue of the Maritime Convention Act, 1911, where both ships are to blame for a
collision, the loss or damage to the ships, their cargo, freight or other property on board
them, each ship is liable to the proportion based on its degree of fault but if it is
impossible to apportion the different degrees of fault, the liability is apportioned equally.
However, where the Hague Rules and the Hague-Visby Rules apply to the contract of
affreightment, the carriers protection therein in respect of errors in navigation or
management of the vessel prevents the cargo owner from recovering from the carrier
whereas recovery from the colliding ship is limited to the proportion based on its degree
of fault. In the US, notwithstanding the contents of the contract of affreightment, the
cargo owner may recover in full from either the owners of the carrying ship, or if as it is
usually the case the owners of the carrying ship are exempted from liability under the
carriage of carriage, cargo owners may recover their losses from the owners of the noncarrying colliding vessel which may later recover from the carrying vessel, an amount
equal to carrying vessels degree of fault. Consequently, in the US, the both to blame
clause in a bill of lading is invalid for being contrary to public policy30, although the
clause may be valid in charterparties in the USA,31 whereas parties involved in a collison
may agree to the American rules of settlement without invoking the jurisdiction of the
USA. The both to blame clause 3 was inserted to correct the anomaly. So, as long as
the underwriters were given the opportunity to defend their assured against a claim under
the both to blame clause, by their assureds notifying them, costs of the defence and
payments to shipowners made by the assured cargo owners, may be recovered from their
insurers. In the US, the clause is applicable in charterparties but inapplicable in bills of
lading.
Where the insurers have paid for the loss or damage to the goods due to the collision,
they will be subrogated to the rights of the assured against the non-carrying vessel and

30
31

See, USA V- Atlantic Mutual Insurance Co, 1952 AMC 659.

See, American Union Transport Inc. v- USA, 1976 AMC 1480.
14

any reduction of their recovery resulting from the owner of the carrying vessel pleading
the both to blame clause.
It has been suggested that Cargo Clause B is proper for the insurance of goods like rice
that could be damaged by seawater but is not really at risk from mishandling whilst
Cargo clause C is usually used to cover bulk cargos that could be lost if the ship sinks or
if they must be jettisoned at sea to save the ship.32
II. CARGO EXCLUSIONS
As noted before in this paper, cargo exclusions are the exclusions to the recoverability by
the assured for loss or damage to cargo assured under the three Institute Cargo Clauses
[A], [B] and [C]. It is also noteworthy that many of the exclusions are similar to and are a
replica of the statutory exceptions and defences in the Marine Insurance Acts of UK and
Nigeria because it is assumed that in most cases the assured will not have a copy of the
Acts. In particular, clauses 4.1, 4.2, 4.4 and 4.5 encompass the statutory defences in cap.
216 whilst the un-seaworthiness and unfitness exclusions of clause 5 amend the implied
warranties of seaworthiness and fitness of the ship under sections 40 and 41 of cap. 216.
The exclusions are stated in clauses 4, 5, 6 and 7 the provisions of which would be
considered hereunder.
Clause 4. In no case shall this insurance cover:
4.1: Loss damage or expense attributable to wilful misconduct of the Assured.
This is exactly what is in section 56(2)[a] of cap. 216 and as such cannot be contracted
out of by the parties agreeing to something different from it in the insurance policy. Any
loss or damage led to by the wilful misconduct of the assured is not recoverable but the
insurer is liable for loss or damage caused by a peril insured against which is caused by
the misconduct or negligence of the master or crew. Moreover, the expression
attributable to is wider than caused by, whereas wilful misconduct is a deliberate
act known to be wrongful or reckless act without caring whether or not it is wrongful and
the Assured is the person interested in the subject-matter of the insurance or for whose
32

See page 3 of a paper titled: Effective Processing of Maritime Claims presented by Mr. R.O. Falokun
of IGI Co Ltd, Lagos at the Seminar on Optimising Benefits of Cargo Insurance held at Muson Centre,
Onikan between 20th and 21st March, 2000.
15

benefit the insurance is made. Cases of wilful misconduct include casting away of a ship
by owners and insurance of goods known to be contrabands and which get impounded
upon discharge.
4.2: Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear of
the subject matter insured.Save for the omission in the exclusion clause of three heads
of covers namely, ordinary breakage or for any loss proximately caused by rats or
vermin or for any injury to machinery not proximately caused by maritime perils, the
exclusion clauses 4.2 and 4.4 include the risks in the statutory exception in section
56(2)[c] of cap. 216, but for which the insurer shall not be liable unless the policy
otherwise provides. Ordinary breakage refers to breakages which usually occur to fragile
and breakable cargo during transportation, while ordinary leakage occurs due to
evaporation during transit but loss or damage due to both can still be specially insured
against in which case the underwriter will be liable depending on the terms of the
insurance, if cargo is lost or damaged due to any of them. As for loss or damage
occasioned by rats, the authorities are conflicting as to whether they are perils of the sea
which should be recoverable or excluded33. There are categories of cargo such as cereals,
copra, hides that are susceptible to vermin infestation and attacks during voyage. It has
been argued that if the infestation by vermin is an inherent vice in the cargo the owner
cannot recover but if it is from outside sources, under Risk Clause 1 [All risks], the
statutory exclusion in cap.216 for damage or loss caused by rats or vermin is overridden.
The ordinary wear and tear is restricted to the subject matter insured and not extended to
the carrying vessel, barge or container.
The expression or for any injury to machinery not proximately caused by maritime
perils in the concluding part of section 56(2)[c] of cap. 216 is not all that relevant to
cargo insurance but merely gives effect to the principle illustrated by the celebrated case
of The Inchmaree.34 . The exclusion of damage or loss due to loss in weight or volume is
not one of the defences in section 56 of cap.216 but was included to cover the field so to
say and take care of cargo which normally dries up during the voyage and is damaged or
lost due to clingage of heavy crude oils during its transportation.

33

See: Laveroni-v-Drury [1852] 8Exch. 166 C/F Hamilton, Fraser & Company v- Pandorf & Co [1887]
12 AC 518.
34
[1887] 12 AC 484.
16

4.3 loss damage or expense caused by insufficiency or unsuitability of packing or

preparation of the subject-matter insured (for the purpose of this clause 4.3 packing
shall be deemed to include stowage in a container or liftvan but only when such stowage
is carried out prior to attachment of this insurance or by the Assured or their servants).
The test as to whether the packing is insufficient or unsuitable is as to whether it is
adequate to bear the ordinary expected handling and carriage. So, if the type of packing is
in line with the custom of the trade, it will be presumed that the packing was adequate.
Loss or damage caused by bad stowage in a container or liftvan will not be covered when
the stowage is before the attachment of the insurance and when it is the assured or his
servant who carries out the stowage.
4.4 loss damage or expense caused by inherent vice or nature of the subject matter
insured.
Inherent vice has been defined as the unfitness of the goods to withstand the ordinary
incidents of the voyage, given the degree of care which the shipowner is required by the
contract to exercise in relation to the goods.35 It has also been defined as a loss
which is proximately caused by the natural behaviour of the subject-matter insured, being
what it is, in the circumstances in which it was expected to be carried.36 In Noten B.V.
v- Harding37 leather gloves shipped in cardboard boxes stuffed in containers were found
on out-turn to be wet, stained, mouldy and discoloured due to moisture they had absorbed
before shipment. It was held that the loss was proximately caused by the inherent vice of
the goods insured and that they deteriorated as a result of their natural behaviour in the
ordinary course of the completed voyage, without the intervention of any fortuitous
external accidents or casualty. Even under section 56(2)[c] of cap 216, an underwriter
will not be liable for inherent vice unless the policy otherwise provides.
4.5 loss damage proximately caused by delay, even though the delay be caused by a risk
insured against (except expenses payable under Clause 2 above).
The word proximately in this section is assumed to have been lifted from section
56(2)(b) of cap. 216 or rather section 56(2)[b] of UK Marine Insurance of 1906. In Pink35

Scrutton on Charterparties, 19th edition, art. 109.

See British & Foreign Marine Insurance Co. v- Gaunt ibid.
37
[1989] 2 Lloyds Rep. 527; [1990] 2 Lloyds Rep. 283.
36

17

v-Fleming38, some of the fruits went bad due to delay caused by repairs of the ship as a
result of collision damage. But the US position is different and as such a delay exclusion
clause would be necessary in the US for its underwriters to be able to exclude a claim
based on delay. The expression (except expenses payable under Clause 2 above)
obliges underwriters to reimburse their assured for cargos proportion of settled general
average including the ships detention expenses. It is noteworthy though that insurers are
to pay for a claim for expenses due to delay if the ship has been detained in
circumstances stipulated in Rule XI of the York-Antwerp Rules or similar provision
affecting general average.
4.6 loss damage or expense arising from insolvency or financial default of the owners
managers charterers or operators of the vessel.
After the introduction of this clause in 1982, it was a subject of hatred by some
stakeholders because it was felt to be onerous on the assured under an all risks policy
since an unlawful detention of goods amounts to conversion and is a basis for a claim
upon an all risks policy39 but due to complaints trailing it, the London Market
underwriters agreed to reduce the harshness of the clause in the standard forms negotiated
with various trade associations.
Insolvency differs from financial default in that former is when one cannot pay his debts
in full and includes where shipowners or operators still manage to continue trading. It is
therefore wider than financial default .It has therefore been suggested that the intention
of the draftsmen was to exclude all types of claims for recovery and forwarding of the
goods arising from the abandonment of a voyage by shipowners or operators who run out
of money whilst the voyage is still in progress.
4.7 loss damage or expense arising from the use of any weapon of war employing atomic
or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
This excludes not only the use but also the testing of weapons of warfare including
nuclear devices and accidental discharges which contaminate a ship and its cargo. Such
loss or damage can be covered and recoverable under an All risks insurance.
38

[1890] 25 QBD 396.

18

Clause 5: Unseaworthiness and Unfitness Exclusion clause.

5.1 In no case shall this insurance cover loss damage or expense arising from
unseaworthiness of vessel or craft, unfitness of vessel craft conveyance container or
liftvan for the safe carriage of the subject-matter insured, where the Assured or their
servants are privy to such unseaworthiness or unfitness, at the time the subject-matter
insured is loaded therein.
5.2 The underwriters waive any breach of the implied warranties of seaworthiness of the
ship and fitness of the ship to carry the subject-matter insured to destination, unless the
Assured or their servants are privy to such un-seaworthiness or unfitness.
Clause 5.1 excludes liability if the assured or his servants are privies to the unseaworthiness or unfitness of the vessel or craft of conveyance of the cargo at the time of
loading the cargo onto the vessel or conveyer. Without the waiver in Clause 5.2 of the
implied warranty as to seaworthiness, the assured would have no claim if the cargo is
loaded on to an un-seaworthy vessel since the Marine Insurance Act provides that there is
an implied warranty as to the seaworthiness or fitness of a ship in a voyage policy at the
beginning of the voyage to the destination contemplated by then parties. Clause 5.2 is
similar to the statutory warranty in the Insurance Act except that the warranty will not be
implied if the cargo owner or his agents are privy to the un-seaworthiness or unfitness of
the vessel.
Other exclusion clauses are war exclusion clause 6 and strike exclusion clause 7.
Clause 6-War Exclusion Clause:
6. In no case shall this insurance cover loss damage or expense cause by:
6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or
any hostile act by or against a belligerent power.
6.2 capture, seizure, arrest or detainment [piracy excepted] and the consequences
thereof or any attempt thereat
6.3 derelict mines torpedoes bombs or other derelict weapons of war.

39

London & Provincial Leather Processes v- Hudson (1939) 64 Ll. Rep. 352.
19

This clause replaced the old Free of Capture and Seizure [FC&S] Clause. Piracy which is
here excepted may be covered under All risks insurance and the doubt earlier expressed
as to whether sub-clause 6.3 actually fall within war risks has now been cleared by its
inclusion as part of war risks.
Clause 7- Strikes Exclusion Clause.
7. In no case shall this insurance cover loss damage or expense:
7.1 caused by strikes, locked-out workmen, or persons taking part in labour disturbances,
riots or civil commotions
7.2 resulting from strikes, lockouts, labour disturbances, riots or civil commotions
7.3 caused by any terrorist or any person acting from a political motive.
It is worth mentioning that even though claims arising from the activities of terrorists or
political activists including agitators and hijackers, which are excluded here have been
included in the Strikes Risk cover.
In sum, whatever risk is excluded under clause B and C cannot be taken to have been
covered by a cargo owner who takes out cargo clause B and C covers. This is not to say
that the assured cannot get such excluded risks insured at all since he can take out such
covers under specific insurance policies covering such risks. It is therefore advisable that
a prudent Nigerian importer of goods should, based on the nature of risks usually
confronted by such goods and the routes from loading port to the discharging port, take
the cargo insurance covers that will sufficiently get him indemnified should there be loss
or damage to his cargo.
Under Nigerian laws, an importer of cargo into Nigeria must insure the cargo with a
Nigerian-based insurance company40. However, because of the penchant of Nigerian
importers to cut corners, evade payment of full Customs duties, they usually undervalue
or under-invoice their imported goods so that they could pay lower import duties, thereby
under-insuring the goods. In the event of loss or damage, they either get underindemnified or are their own insurers in respect of the uninsured value of the imported
goods or they lose interest in pursuing indemnity from the insurers. It is also noteworthy
that the Nigerian Shippers Council whose statutory duties include the protection and
guidance of Nigerian shippers, has through seminars and publications been creating
40

Section of the Insurance Act, 1997.

20

needed awareness on the part of the Nigerian importers and shippers but it seems that
there has been only a little change so far. Nigerian importers are either slow to come out
and file cargo insurance claims in courts against insurers or do not come out at all
because of the fear of the exposure of their illegal under-invoicing and under-valuation of
their imported goods.
This is one of the causes of the dearth of decided Nigerian cases on cargo perils insurance
and cargo exclusions that this writer discovered whilst writing this paper. This writer
searched all well known Nigerian law reports and in particular the Nigerian Shipping
Cases, and books on [marine] insurance by learned Nigerian experts/authors including the
book recently written by Professor Olusegun Oyerokun41, for decided cases on the
subject-matter of this paper without coming across any relevant decided cases.
Other causes of the dearth of relevant decided Nigerian cases on the topic under
discussion may be the ignorance by Nigerian cargo owners of their rights to file insurance
claims and failure to seek legal advice or the failure by cargo owners to sue insurers for
indemnification. It may also as a result of settlement of such insurance claims by insurers
out of court or before the assured may think of going to court. Whilst this may be a sign
of good claim settlement record by the Nigerian insurers and is in the interest of the
commercial progress of the assured who does not want the settlement of his claim
prolonged by court actions, this writer is of the view that it has led to the nondevelopment of Nigerian Marine insurance law through decided cases on cargo insurance
perils and cargo exclusion clauses.

REFERENCES:

41

1.

UK Marine Insurance Act 1906.

2.

Marine Insurance Act cap. 216 Laws of the Federation of Nigeria, 1990.

3.

Marine Insurance by Donald O May and Julia.[1993].

4.

The Law of Marine Insurance by Benneth [1996].

5.

A Handbook to Marine Insurance by Victor Dover [8th Edition], 1975.

6.

Insurance Law in Nigeria by Professor Olusegun Oyerokun [2001].

7.

The Institute Clauses by Hudson and Allen, 3rd Edition [1999].

Insurance Law in Nigeria [2001].

21